How was that for an options expiration week? Stocks slumped during the first 3 days of the holiday shortened week, but blasted higher on Friday - expiration day. The Dow gained 331-points, or 1%, while the broader indices saw much larger gains. The dollar was up early holding the I-fund back a bit in early trading, although it came back with solid gain but lagging the C and S funds. However it continues to be the leader of 2023. Bonds were down sharply on higher yields, but even the F-fund is up 3% for the month.
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As the charts head toward the recent highs again, along with all of the resistance that we see, we have to wonder what Friday's action meant. Was it a fake out, as options expiration week / day action often can be? Or was it a sign that the bulls are alive and well and prepared to buy the dips?
The key going forward remains the Fed and their relentless pursuit to get inflation under control. There are certainly signs that inflation is getting under control, but the labor market and wage inflation is still a concern for the Fed, so they remain unwavering in their hawkish outlook and desire to keep hiking interest rates.
Bond "experts" believe that the Fed follows the yield of the 2-year Treasury Note, and this chart certainly gives that theory merit. The yield on the 2-year has flipped over after peaking late last year, and it is now at 4.18%, while the Fed is threatening to raise the Fed Funds Rate (FFR) up over 4.5% next month. Right now the market has priced in a near 100% chance of a 0.25% hike in the Fed Funds Rate on February 2.
With a week and a half to go until that next FOMC meeting and interest rate decision by the Fed, all eyes should be on that 2-year Treasury yield. Ironically the yield was up on Friday so it's obviously not going to be a tick for tick thing with the stock market, but rather the direction of these trends.
The weekly chart of the S&P 500 continues to show us the firm resistance that the index is dealing with as it also tests the 50-week moving average and the long term descending resistance line. The higher low in December gives the bulls some optimism, but that won't be confirmed unless we see a higher high over 4100.
That higher low appears on many charts including the economically sensitive Dow Transportation Index that may be trying to carve out an inverted head and shoulders pattern, which is generally considered bullish as they tend to break above the upside of the neckline.
This makes the interest rate quandary that much more confusing. Strength in the Transports is indicative of strength in the economy. As is an increase in the price of oil which is now back over $81 and above some major resistance.
This sounds like some good news for the economy yet the 2-year / 10-year Treasury Yield curve is still very much inverted, and that is indicative of a market heading for a recession.
Meanwhile the labor market is basically near full employment so the Fed has a lot to consider with all of this contrarian information leading up to this next FOMC meeting and decision on interest rates, and of course that makes it tough on us as well as we try to decipher what the heck is going on. The stock market seems a little confused as well with the indices stalling at resistance, yet refusing to rollover.
The S&P 500 (C-fund) recaptured much of that breakdown candle from January 18th, which is something we talked about recently. There is a draw to try to get back some or most of those losses when we see one of those large negative candlesticks. The question is, was that all of what Friday's action was about - retesting some of that candlestick, or do the bulls have more in their bag of tricks to follow up on that gain with more upside this week? The bulls are certainly champing at the bit to turn the current inverted head and shoulders into a breakout to another high, but the bears are fully aware of the flawed fundamental issues with the stock market and the economy. The S&P closed just above the orange 200-day moving average again on Friday, but below the blue 200-day EMA. It also bounced impressively off the 3900 area again, and the support from the 50-day EMA (purple.)
The DWCPF (S-fund) looks similar to the Transportation Index chart that we posted in the top section, where a clear inverted head and shoulders pattern has been forming. That means we could see some chopping around in that right shoulder between 1620 and 1720 for a while, but technical analysis suggests that this has a good chance of eventually breaking to the upside.
The EFA / I-fund lagged some on Friday despite the 0.88% gain. The dollar was up early and that kept some pressure on the index, but it started to fall later in the day assisting with the rally. The overseas markets closed well before the US market closed at its highs of the day so we could see some buying in the European markets early on Monday. The trend is up but a move to 68-69 isn't out of the question as that is where the bottom of the ascending channel would be tested.
BND (bonds / F-fund) was down rather sharply on Friday with yields moving higher, but that pullback served to fill the open gap near 74 before it reversed and closed off the lows. It is basically in the middle of that large rising trading channel so there is room on both sides for movement in the short term, but the current new trend is clearly up at this point, until that channel breaks.
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
To get weekly or daily notifications when we post new commentary, sign up HERE.
Thanks so much for reading. We'll see you back here tomorrow.
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
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[TR]
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[TD="width: 338, align: center"] Daily TSP Funds Return
[TR]
[TD="align: right"][/TD]
[/TR]
[/TABLE]
[/TD]
[/TR]
[/TABLE]
As the charts head toward the recent highs again, along with all of the resistance that we see, we have to wonder what Friday's action meant. Was it a fake out, as options expiration week / day action often can be? Or was it a sign that the bulls are alive and well and prepared to buy the dips?
The key going forward remains the Fed and their relentless pursuit to get inflation under control. There are certainly signs that inflation is getting under control, but the labor market and wage inflation is still a concern for the Fed, so they remain unwavering in their hawkish outlook and desire to keep hiking interest rates.
Bond "experts" believe that the Fed follows the yield of the 2-year Treasury Note, and this chart certainly gives that theory merit. The yield on the 2-year has flipped over after peaking late last year, and it is now at 4.18%, while the Fed is threatening to raise the Fed Funds Rate (FFR) up over 4.5% next month. Right now the market has priced in a near 100% chance of a 0.25% hike in the Fed Funds Rate on February 2.
With a week and a half to go until that next FOMC meeting and interest rate decision by the Fed, all eyes should be on that 2-year Treasury yield. Ironically the yield was up on Friday so it's obviously not going to be a tick for tick thing with the stock market, but rather the direction of these trends.
The weekly chart of the S&P 500 continues to show us the firm resistance that the index is dealing with as it also tests the 50-week moving average and the long term descending resistance line. The higher low in December gives the bulls some optimism, but that won't be confirmed unless we see a higher high over 4100.
That higher low appears on many charts including the economically sensitive Dow Transportation Index that may be trying to carve out an inverted head and shoulders pattern, which is generally considered bullish as they tend to break above the upside of the neckline.
This makes the interest rate quandary that much more confusing. Strength in the Transports is indicative of strength in the economy. As is an increase in the price of oil which is now back over $81 and above some major resistance.
This sounds like some good news for the economy yet the 2-year / 10-year Treasury Yield curve is still very much inverted, and that is indicative of a market heading for a recession.
Meanwhile the labor market is basically near full employment so the Fed has a lot to consider with all of this contrarian information leading up to this next FOMC meeting and decision on interest rates, and of course that makes it tough on us as well as we try to decipher what the heck is going on. The stock market seems a little confused as well with the indices stalling at resistance, yet refusing to rollover.
The S&P 500 (C-fund) recaptured much of that breakdown candle from January 18th, which is something we talked about recently. There is a draw to try to get back some or most of those losses when we see one of those large negative candlesticks. The question is, was that all of what Friday's action was about - retesting some of that candlestick, or do the bulls have more in their bag of tricks to follow up on that gain with more upside this week? The bulls are certainly champing at the bit to turn the current inverted head and shoulders into a breakout to another high, but the bears are fully aware of the flawed fundamental issues with the stock market and the economy. The S&P closed just above the orange 200-day moving average again on Friday, but below the blue 200-day EMA. It also bounced impressively off the 3900 area again, and the support from the 50-day EMA (purple.)
The DWCPF (S-fund) looks similar to the Transportation Index chart that we posted in the top section, where a clear inverted head and shoulders pattern has been forming. That means we could see some chopping around in that right shoulder between 1620 and 1720 for a while, but technical analysis suggests that this has a good chance of eventually breaking to the upside.
The EFA / I-fund lagged some on Friday despite the 0.88% gain. The dollar was up early and that kept some pressure on the index, but it started to fall later in the day assisting with the rally. The overseas markets closed well before the US market closed at its highs of the day so we could see some buying in the European markets early on Monday. The trend is up but a move to 68-69 isn't out of the question as that is where the bottom of the ascending channel would be tested.
BND (bonds / F-fund) was down rather sharply on Friday with yields moving higher, but that pullback served to fill the open gap near 74 before it reversed and closed off the lows. It is basically in the middle of that large rising trading channel so there is room on both sides for movement in the short term, but the current new trend is clearly up at this point, until that channel breaks.
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
To get weekly or daily notifications when we post new commentary, sign up HERE.
Thanks so much for reading. We'll see you back here tomorrow.
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
